Islamic bonds fell in November

Islamic bonds fell in November, breaking a five-month rally, as the crisis of Europe's concern extend debt reduced demand for higher-yielding assets in emerging markets.

Average yields of sukuk rose 19 basis points, or 0.19 percentage point in November to 5.04 percent, the highest level in two months, according to HSBC / NASDAQ U.S. Dollar Dubai sukuk index. Yields had fallen 194 basis points from 31 May until late October. The extra yield investors demand to hold emerging market debt-Islamic rather than U.S. Treasuries rose 22 basis points in the month to 267, according to JPMorgan Chase & Co. 's EMBI index.

"The sukuk market does not work in isolation," said Scott Lim, chief executive of Kuala Lumpur-based MIDF Bhd Amanah Asset Management, which oversees the equivalent of $ 670 million of assets, in an interview on 26 November. "Europe is having too many structural problems and this is just the beginning. It will be a challenge for the bond market."

The declines pared gains this year Islamic bond to 11.2 percent, compared with an increase of 13.3 percent for the debt of JPMorgan EMBI Global Diversified index.

Spain at the weekend agreed to a package of € 85000000000 (112 million dollars) in aid from European governments to help prop up its banking system. The bond yields Portugal and Spain to 10 years rose to records this month on speculation the countries will Ireland in search of a bailout.

Larger spreads

Investor demand for the safety of German debt drove the extra yield investors demand to hold the bonds to 10 years in Portugal on bonds to a record high of 460 points on 11 November. Spain premium widened to 286 points today. The difference between the average yield of sukuk and interbank offered rate in London fell 12 basis points to 349 basis points in November, according to HSBC / NASDAQ U.S. Dollar Dubai sukuk index.

"By looking at the challenges of the euro zone, of course, is easy to see the gravity of capital to safe havens," wrote Rafael Martínez Dalmau, of the Singapore-based head of portfolio management that meet the Shariah of BNP Paribas, in an e-mail response to questions on 29 November. "While the markets may suffer sporadic attacks of volatility, higher profits in sukuk is likely to continue, albeit at a slower pace than we have seen in recent months."

The yield on the note of Malaysia Islamic percent of 3,928 due June 2015 fell three basis points to 2.87 percent today, up 38 basis points in November, according to prices provided by the Royal Bank of Scotland. It has advanced 54 basis points from a record low of 2.33 percent on Nov. 4. The difference in yield between the notes of Dubai and Malaysia fell by three basis points today and dropped 15 basis points this month to 379.

Sales Sukuk

Sales of Shariah-compliant bonds, which pay yields of assets to comply with Islam's ban on interest, have plunged 31 percent this year to $ 13.7 million in restructuring of debt and falling prices properties in the confidence of investors in the Middle East harm. It reached a record $ 31 billion in 2007.

sukuk offerings is likely to pick up next year as growth in Asia and the Persian Gulf continues to outpace Europe and the U.S., Dalmau wrote.

developing economies of Asia will expand 8.4 percent in 2011, compared with growth of 2.2 percent in advanced countries, the International Monetary Fund forecast on Oct. 6. The economies of the Middle East and North Africa will grow by 5.1 percent next year, the IMF estimates.

Dubai Sale

Dubai government hired CIMB Investment Bank Bhd, a unit of Kuala Lumpur-based CIMB's Holdings Bhd Group as lead manager to sell between $ 1 billion and $ 1.5 billion sukuk, a person familiar with the plan said 24 November. Prime Minister of Malaysia, Najib Razak, said Oct. 26 the Dubai Department of Finance proposes a program of multi-currency sukuk.

National Commercial Bank, Saudi Arabia's largest lender, plans to sell its first Islamic bond in the second quarter of 2011, Abdulrazzak Elkhraijy, executive vice president and head of the Islamic development bank, said in an interview in Manama, Bahrain in November 1922.

"We expect that sukuk issuance to be affected only because the market is in a corrective phase," said Rafael de BNP Paribas.